April 2014 Business Exit Resource

Internal Communications for an Owner’s Exit

ID-100129668The sale of a business is a major milestone for any entrepreneur. Often, the owner’s exit planning has been spinning around in his or her head for years, giving ample time to process how the sale will affect their personal and professional lives. However, the same is not true for employees. When it comes to telling internal personnel about the future plans for the business, owners are often faced with the conundrum of who to tell first and how soon is too soon – for fear of repercussion.  This newsletter is written with the intention of helping owners think through this important issue in their overall exit planning.

The Importance of Effective Communication

Advisers enter a business owner’s world mostly on a reactive basis, usually because there is a need for assistance with an outstanding issue. As an example, for some owners the relationship with their accountant is the most consistent simply because state and federal governments require, at a minimum, businesses and their owners to file taxes each year. This is a reactive (albeit very important) approach to working with an advisoer. Most business owners succeed with their own enterprises because they fit into one of two categories: either they have deep technical expertise that is highly valued in the marketplace, or they are an effective salesperson. The majority of privately-held business owners are effective salespeople, which means that they are adept at communicating and winning consensus around their ideas. Effective communication of the exit plan is a very important part of the process if you want to have a successful transition. Without good communication, many things can and often do go wrong.

A Lonely Task

Given that most owners work with professional advisers, it is helpful to categorize them. The world of professional advisers can be neatly divided into two types: relationship-based advisers and transaction-based advisors.It can be a very lonely process for ID-10021832owners to plan their exit, since they cannot expect managers or employees to understand the risk / return formula and complexity of this unique decision-making process. As human beings, we have a ‘fight or flight’ mentality built into our DNA and discussions around an owner selling the company often result in an automatic reaction of employees being more concerned about their own position versus what is best for the organization and owner.

Owners need to get comfortable with the idea that there are matters outside of their control in this process. As compassionate business owners, many want to ease the transition for their workers; however, telling them about a plan to sell too early in the process can create unnecessary disruptions in the company. The solution to dealing with this challenge is having a concise and effective communication strategy in place. Knowing when and how much to tell employees and determining who should be involved in the communication process can ease stress and risk surrounding this phase of exit planning significantly.

The Potential Impact of Ineffective Communication

Whether or not you are selling your business with the best of intentions for all employees and managers, some high-ranking managers will still view your efforts to sell as a process in which they expect to participate. If your communication with this group is not handled in the proper way, at the proper time, these feelings of being left out may influence the effectiveness of your exit. At an extreme, if you are looking to sell your company to an outsider and the management team is not on board with the transaction (due to feeling left out), they could put at risk the success of the entire sale.

Management Communications vs. Rank and File Communications

It is sometimes difficult to know how much information to share with your management team. When deciding who to bring into your circle of trust for preparing the sale of your business and for planning your exit strategy, be sure to choose wisely – including those individuals who offer the most value and who can be trusted to keep your decision making confidential. You will want to surround yourself with optimistic people who can help you, who have your best interests in mind and who will have a positive impact on and attitude about the changeover. These folks should be role models and confidants, rather than insecure managers who will see this as an opportunity to start looking for another job. Make them a part of your team, be confident and show them you are still the strong leader you always have been.

Also recognize that this core group that you are confiding in will have significantly more information than most others and that, too, will be a burden for them, (particularly if e-mails are read by others in the company, etc). One solution to this issue is to set up personal, anonymous (i.e. non-work) e-mails for all those involved with the initial discussions, to ease communication and ensure confidentiality.

How Much and When to Share Information / How Much Can an Employee Base Be Expected to Understand?

Some theorists believe that being transparent from the get go is the most effective way to communicate with your employees and management team about the impending sale. Other strategists advise against this for fear of repercussions due to employee concerns and frustration.

While there are certain circumstances that require you to tell employees early in the process, our experience shows that it is usually beneficial to wait until after a sale is complete to share information with the majority of employees. If you talk to your people before this happens, you may be faced with questions and concerns you are not ready or able to answer. To avoid rumors and panic, have a solid plan in place and be able to provide details regarding the sale – this will help alleviate employee concerns.

Making the Announcement

When you are ready to present this news to your employees, be sure to convey that this is a positive thing for the company and ID-100213519that it is still “business as usual.”  Be upbeat and honest and try to make your employees feel confident in their roles and responsibilities within the organization – even if you are no longer their leader. It will be important for them to know that business can and will go on without your presence and that a new owner has a vested interest in the success of the business – all things being equal, that owner will want to keep onboard the people that make the business work.

Concluding Thoughts

Every owner handles internal communications regarding a business sale differently and every company and transition has a different look and feel to it. While there is no one ‘right way’ to communicate the salient points of your exit plan with your internal leadership team (and others), there are ways to avoid classic problems that come from a total lack of communication. Recognize the importance of a clear and concise communication plan; understand the possible impact that will occur upon telling employees; know what, when and how much to share; and, determine what your leadership needs to know versus what your employees need to know. Given so many owners face this common dilemma, we hope this newsletter is beneficial in making you more proactive in addressing these communication issues as a part of your overall exit planning.

Regards,

PerryTEMP

N. Perry Moore, CBEC, CFP®, ChFC® (Bio)

Director of Wealth Planning

Direct Phone: 812-602-6306

Email: npmoore@paynewealthpartners.com

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The information in this material is only as current as the date indicted, and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which are subject to change and which Payne Wealth Partners, Inc. does not undertake to update. While all information prepared in this document is believed to be accurate, any statements of opinion constitute only current opinions of Payne Wealth Partners, Inc., which are subject to change and which Payne Wealth Partners, Inc. does not undertake to update. Accordingly, you should not put undue reliance on these statements.

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